Can Blockbuster Turn Its Stores Into Destinations?

from the worth-a-shot dept

Blockbuster clearly knows it's facing mounting challenges to its business. The company has been mostly outplayed by Netflix in the online rental market (though, Blockbuster's competing offering has done much better than some others who have tried to play the Netflix game). The company's financials have been a bit of a mess, but it's still planning for the future -- and that includes recognizing that the market is changing drastically, and it needs to change with it. While no one knows if it will be able to survive these changes, it's still rather refreshing to at least see the company try to meet those challenges head on. Recently, it's talked about a strategy to create its own set top box as well as put out an unsolicited bid to buy Circuit City. While both ideas have some problems (the Circuit City acquisition would be particularly hard to pull off for example), it does show that the company is trying to branch out.

What may be even more interesting, though is that Blockbuster clearly recognizes that it has an asset in its brick-and-mortar stores that Netflix can't easily copy. While some may say that the stores are a liability, that may depend on what Blockbuster can do with them. Already, it tries to leverage the stores in its online rental service (allowing you to return movies to the stores and immediately pick up a new film as part of your subscription), but as Gizmodo points out, it's also experimenting with making the shops into real destinations, rather than just rental shops. It's playing with a few different "formulas" to see how people respond -- including setting up a bar where people can buy soda or coffee and another where there's free WiFi and people can play video games on a big screen. It's also testing out setting up a store where shoppers can buy consumer electronics. You can consider that last one a test run for what would happen if the Circuit City deal goes through.

Turning the stores into more of a destination, with a variety of options on ways to make money off of the customers is a necessary strategy -- though, it's hard to pull off well (so, at the very least, it's good to see the company experiment before rolling something out nationally). Sam Goody, the big record store chain, tried to do something similar a few years back, and it didn't work out all that well. A large part of the problem may be really convincing people that it's a worthwhile destination. This is one case where the company's reputation matters, and Blockbuster's reputation isn't great. Still, this is the right strategy -- though, success or failure is very much dependent on the execution, which isn't exactly Blockbuster's strong suit.

Radio Shack + Blockbuster.

I don't know if this was a nationwide experiment, but one of the Blockbuster stores in Norfolk, Virginia had a Radio Shack inside it for a while. Didn't last long, but at least they gave it a good effort. I remember being surprised at how much of the floor space they turned over to RS for the experiment.

Hmm, a movie destination?

Gee, what kind of existing movie destinations have been more or less successful for 80 years? Oh, yeah, theaters.

It's good that Blockbuster realizes that renting plastic discs probably doesn't have much of a future. But it's unfortunate that they haven't hit on the obvious value-add: set up absolute top-notch home theaters, and rent them on a per-movie basis. Plenty of people don't have a great home theater setup, and even more people can't comfortably accomodate 6? 8? 10? people in theirs.

So set up awesome screening rooms, and rent 'em out. Let me schedule a screening of Jurassic Park for 8pm next Wednesday and invite a bunch of friends. Oh, and then sell us overpriced concessions, too. There has to be money there.

Can Blockturd...

Re: Hmm, a movie destination?

Brooks, the concept is intriguing, but it's less compelling after running some numbers.

VideoBusiness.com has their annual revenue per square foot at $132 in 2007, and with domestic rental gross margin of 63.6%, that translates into a gross margin target of at least $84. I'm figuring a screening room is at least 400 square feet, that translates into roughly $35,000 per year to break even vs. their current business.

How many times a week could you realistically rent these screening rooms? I'm figuring a couple of slots per evening, and even if the weekends are booked (3 nights, 6 slots), throw in 2 more for the weekdays, that's 8 times per week, 416 times per year. Therefore, breakeven vs. today's business is $84 each time a room is rented including concession gross margin. That's just to maintain their current, weak performance.

Most consumers go to Blockbuster when they want an inexpensive evening of entertainment compared to movie theatres. The screening room proposal represents a premium priced experience relative to theatres with a scary "minimum" price (what if all my friends don't show up, who's stuck paying for the reservation?).

They'd be better off finding a retail model that actually increases store utilization from evenings-only to most of the day.

We used to have a couple really nice video rental stores near here. I can remember back when my family got its first VCR, I rented some oddball movies that I probably wouldn't have heard of otherwise. Then the chain stores like Tommy K's and Starship Video put the independant stores out of business. Then Blockbuster came and put the smaller chains out of business. Now the only local store is Blockbuster.

I refuse to have a membership there because they drove away all the other stores and because they not only refuse to carry any NC17 movies, they also coerce Hollywood into censoring some of its R-Rated movies.

Blockbuster and Circuit City

Brooks just nailed it. All companies have to change their original concepts and ideas in order to grow and survive. Provide home theatre studios inside the store to preview or show full length movies to the public or for private screenings for small groups. Theatres are too large for this so it is a great idea. CCS has been going downhill since BestBuy came on the market, they stuck with original ideas and their own arrogance has led them to failure. Blockbusters competition is NetFlix, they have been struggling but they also realize the need to change and that there is value in the brick and mortar. Blockbuster is on the right track with this one and if CCS leadership was smart they would grab it now and work out a partnership. Problem is that the CCS board continues to show their arrogance and their lack of leadership, they continue to think they can make it on their own. The board needs to wake up and smell the coffee, BestBuy beat them at the original game long ago.
There is a very powerful group behind the plans for Blockbuster. Consider the partnership that has formed between Blockbuster and Mark Wattles(formerly Hollywood Video). Wattles did not become the third largest shareholder in CCS to lose money, he did it to gain control and start paving the way for Blockbuster, and he is putting enormous pressure on the CCS board for changes and resignations. Blockbuster decided to make it public that they have a bid for CCS because they cannot get the CCS board to move on their. Blockbuster has had the plans drawn up for this one for some time now, they just needed the right time to pull it off. Mark Wattles is the key, and Carl Ichan can finance the entire project. There is a showdown brewing at the upcoming CCS stockholder meeting....put this alltogether and you have the makings of the first movie that "Circuit Buster" can preview in their newly acquired home theatre studios. I can't wait.

I live in a smaller city (100,000 people) here in Texas and while our local blockbuster store closed up, Hastings is doing very good, they provide a really nice coffee bar and reading lounge along with their book and movie selections, it makes for a comfortable visit to the store. While this might not work everywhere I think it does show that a store that offers more then just movies does have a chance to be succesfull if management is willing to broaden their options.

Killed BB

Actually, I think what really killed Blockbuster was the transition to DVD and--in particular--the simultaneous release of movies to Blockbuster AND to PPV AND to the public at the same time.

When buying VHS tapes at $80 a whack, Blockbuster had about a two month long window in which watchers HAD to rent if they wanted to see the film at home. Today, you can buy the DVD from Target for $16 or so at the same time it's released, or simply "rent" it off your cable box for $5 and skip the trip.

Or just get it "next day" from NetFlix. And video downloads and Apple TV are the final nails in the coffin. Heck, even the major grocery chains are boarding up their in-store rental operations. One store near me even stuck a RedBox in what used to be the entrance to the video section.

As to "destintions", the answer is no. They simply don't have enough floor space in the typical store to compete with Best Buy or Circuit City, not to mention Wal Mart. And even less if they tried converting half the store into "screening rooms".

And how many adults are going to want to visit a store where a bunch of kids are yelling and playing video games?

Actually, they probably could get by renting DVDs and BluRay discs and video games... but only if they cut the average store size by, say, two-thirds. Those wide aisles and rows of shelves with every video face-out waste a LOT of expsensive square footage.

You really shouldn't underestimate how hard blockbuster sucks. I went there recently, they didn't have The Holy Grail, fer christ sakes. What kinda retarded video store doesn't stock the Holy Grail? Not that it was rented, they just didn't stock it. They basically didn't have anything other than a few mnonths old hit releases. They had like 40 copies of each of those, but nothing older than a few months. No wonder they're going out of business.

blockbuster and radio

Blockbuster's business model is, as Matt Bennett aludes, little different from that of Top 40 radio. It thinks we all want to see the same limited selection of, well, blockbusters, so they only need to make those available. There doesn't need to be any intelligence behind their inventory; the ads in Variety do their choosing for them. And just as the internet showed that people want all sorts of music, not just that foisted on people by the major record labels, NetFlix exposed the desire people had to see the most obscure movies ever, and Blockbuster simply can't compete with NetFlix's ability to supply everything. Blockbuster just hasn't figured this out yet. People don't want convenience, coffee, or electronics and they certainly don't want the advice of the morons that Blockbuster hires. They want selection, and they want the advice of likeminded people. Blockbuster deserve to go under.

I don't know that I agree with the thought process that simply diversifying an existing store will attract more foot traffic to the business. If I am wanting to go rent a video, I am not thinking to myself "Ok, which video store in the city is going to give me the best experience for the 10 minutes I am in there?".

Similarly, if I want coffee I go to a coffee store, if I want electronics I go to an electronics store, if I want to shop at a circuit city I will go to a circuit city. Having all these things in a blockbuster might actually deter me from going there. If I want to chat over a cup of coffee, I don't want to be bothered by the noise of a video store or bask in the glow of fluorescent lighting. If I am shopping for a big screen TV, there is something a little less comforting to me when buying one from people who work along side minimum wage blockbuster employees.

Diversification works for some businesses, however "some" is the key word. Certain businesses, such as video rental stores, need to figure out that they provide a very specific service, which is that people want to watch movies in the comfort of their living rooms (big screen TVs or not) and adding additional 'experience' will not shake my desire to pull up to the store, get in, grab my movie, pay, and get out.

What they need to do is figure out ways to make that experience more convenient. Blockbuster was right on track by differentiating themselves from the competition by eliminating late fees, and providing a service similar to Netflix with the option of 'in-store trade-in' as it enhances their core service by making the same process more convenient. Blockbuster should look at something like digital on demand services over the internet if they are looking at expanding anything.

Realistically, digital content is coming, so why would they sink more money into stores that likely will eventually become obsolete?